Corporate shareholders actively engaged in running their corporation (business owners) often get so busy running their corporation that they forget to follow corporate formalities like holding shareholder and board meetings and keeping minutes of those meetings. These formalities may not seem important to the business owner; however, when he or she goes to sell his or her shares or tries to get a loan for the corporation, the corporate minute book becomes very important.
Lenders and prospective purchasers rely on the minute book for various reasons. They use the minute book to determine whether (i) the corporation is duly organized; (ii) its bylaws permit the proposed transaction; (iii) the shareholders, board, or both must vote on the proposed transaction and what percentage vote is required to approve the proposed transaction; (iv) the amount of outstanding shares and who owns them; (v) the corporation is subject to any material contracts (like stock redemption agreements, security agreements, restrictions on stock transfer, etc.); and (vi) various other reasons.
When updating your corporate minute book, it is important to only create minutes for meetings that actually happened. Creating minutes for meetings that were not held or holding a meeting and backdating the minutes to reflect that the meeting was actually held at an earlier date may constitute fraud and could subject the signor to civil liability or even criminal prosecution. When meetings were not held, the business owner, with the help of his or her attorney, should ratify past legal actions of the board as actions of the corporation. Going forward, the business owner should hold the required annual meetings or, if no meeting is required, use the shareholder consent resolution process.
--David J. Williams, Attorney, The Gallagher Law Firm